Diamond exporters have called the government’s move to introduce a 0.25% GST on rough diamonds to keep a trail on such items ‘retrograde’.

Praveenshankar Pandya, chairman of GJEPC said it is difficult for gems and jewellery exporters to pay 0.25% and then initiate the process for refunds.

Diamond exporters have called the government’s move to introduce a 0.25% goods and services tax rate (GST) on rough diamonds to keep a trail on such items ‘retrograde’. However, the bullion sector heaved a sigh of relief, as gold, silver and processed diamonds — including jewellery — will be taxed at 3% (and not more) under the new indirect tax regime, against the current tax incidence of around 2%. Nevertheless, it has now sought a cut in the basic Customs duty on gold from the current 10% to discourage smuggling.

Praveenshankar Pandya, chairman of Gem & Jewellery Export Promotion Council (GJEPC), said: “Taxing diamonds is a retrograde step and not in sync with equivalence policy. Diamonds are the key raw materials for the gem and jewellery exports business. Rough diamonds have been kept out of the purview of taxes even in other Asian countries which are globally competitive.”

He said it is difficult for gems and jewellery exporters to pay 0.25% and then initiate the process for refunds. As much as 95% of the diamond output (after processing) is exported, Pandya added.

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Rajiv Popley, executive director at Popley Group, said while the 3% GST allays fears of jewellers, there is a need to cut the basic Customs duty now to promote local value addition and curb illegal trade. Currently, while the VAT on gold is roughly 1% on gold, an excise duty of 1% is imposed on units whose turnover is above `15 crore a year. However, most neighbourhood jewellers don’t pay the excise duty, as their turnover is below this threshold.

Samir Sagar, director at Manubhai Jewellers, said the decision to tax gold at 3%, and not more as suggested by some, will encourage the industry to be more streamlined. “Consumers and jewellers will take the first few months to adapt to the new rule but once that phase ends, the market will stabilise,” he said.

Aditya Pethe, director at WHP Jewellers, said with GST at 3%, many unorganised players will be encouraged to enter the organised trade, which will benefit the economy.

Chief economic adviser Arvind Subramanian had suggested a 4-6% GST rate for gold, saying that a higher tax incidence on gold will allow the government to impose lower taxes on scores of other essential commodities.